Sally Gainsbury: new bailouts required for new deficits

The NHS has had some bad health secretaries over the years, but only one – Patricia Hewitt – can claim to have almost single handedly created a deficit crisis.

Ms Hewitt’s dastardly act was to ban the capital-to-revenue transfers which had until then disguised the organisations whose income did not cover current expenditure by allowing them to pay their bills with capital funds intended for investment.

The upshot: hospitals did not suddenly start running up deficits in 2005-06 – they just stopped being able to hide them.

Since Hewitt’s day, the NHS has developed three ways to prop up such beleaguered providers.

First, there is the straightforward local bung from the primary care trust. The last data release from the Department of Health shows they have held steady over the last two years at around £110m.

Next there are the “working capital loans” – overdrafts to you and me. These are financed by the DH with the principle and interest repaid over a set period. They too have held constant at around £50m.

Last but certainly not least is public dividend capital. PDC used to be thought of as the taxpayer’s stake in NHS trust and foundation trust assets. When new PDC was issued, it was used to purchase additional assets, with the taxpayer’s investment acknowledged in the form of an annual 3.5 per cent “dividend” payment back to the DH, ready to be recycled into fresh PDC issues.

Now, however, we have the concept of “revenue PDC” which is given to organisations deemed too chaotic to cope with a regular schedule of repayment as per the working capital loans regime.

In the last year, “revenue PDC” more than trebled from £76m in 2010-11 to £253m in 2011-12, of which more than £91m was to six organisations that had never required such emergency funding before.

That brought the number of providers receiving some form of bailout to 31. Yet by the DH’s calculation, only eight providers will record a deficit in their 2011-12 accounts. I cannot help but wonder what Patricia Hewitt would do.